Leeds Beckett University – v – Travelers Insurance Co Ltd

A recent decision by the Technology and Construction Court has considered causation issues in the context of a property insurance claim. Was the damage accidental or inevitable?

The insured, Leeds Beckett University (‘the University’), acquired the site of a former brewery on which to build a number of accommodation blocks in 1993. The blocks were completed by 1996.

In December 2011, large cracks appeared in the largest of the buildings (“the building”). Subsequent investigations revealed that the concrete walls below ground-level had turned to mush. The building was then demolished in 2012.

The University insured the building with Travelers, who declined the claim in May 2012. In support of their declinature, Travelers said that the building had been subjected to sulphate attack by ground water beneath, and that the exclusions for gradual deterioration, faulty or defective design, or contamination applied.

The University disagreed, and argued that the relevant damage was “accidental” such that it was caught by the policy’s definition of “damage.” Further, it sought to characterise the damage as “flood” damage, so as to bring it within the meaning of “defined peril.”

The issues to be decided at trial were as follows:

a. Could the damage be characterised as “accidental damage” within the meaning of the policy?

b. If so, was it caught by any of the exclusions which the insurers sought to rely upon?

Was the damage accidental?

The Judge, Mr Justice Coulson, began his analysis by setting out the detailed history of the building and the land upon which it was sited. He referred specifically to the fact that the building was built over an existing watercourse, and to the historic geotechnical reports which raised concerns with the sulphate content of the soil and the damage it might cause. The Judge also made reference to the defective design of the groundwater drainage system, remarking that “this was going to be a difficult site to develop because of the numerous water issues.”

The University tried to deflect these issues, and asserted that the watercourse did not show up on every O/S map, and could not be identified when construction commenced. Further, it said that the occurrence of the damage over the watercourse was just a coincidence. The Judge gave short shrift to these points, and rejected any notion that the damage could be described as “flood damage.”

As to whether the damage was accidental; again, the Judge found against the University. His view was that “accidental simply means an event occurs by chance, which is non-deliberate.” In framing his view, he drew a distinction between the risk of something happening, which would usually be covered by a policy, and the inevitability of something happening (such as wear and tear), which would not.

On the facts, the Judge was left with little doubt that the damage was not accidental or fortuitous, a fact on which both parties’ experts agreed. There was not simply a risk that the concrete walls would fail – it was an inevitability. Accordingly, the University could not succeed on causation, and its claim failed.

Did any of the exclusions apply?

1. Gradual deterioration?

The University argued that, if the damage was accidental, the exclusion could not apply. The Judge disagreed, and concluded that there was nothing in the policy which supported such an analysis. Further, he considered the University’s argument to be ‘contrary to commercial common sense.’

As to the meaning of the words “gradual deterioration”, the Judge concluded that “gradual deterioration can be caused by the interaction between the property insured and the circumstances in which the property exists.” In other words, one had to take a holistic view when looking at gradual deterioration – it was wrong to look at the building itself without considering any external influences i.e. the ground and flowing water.

In the present case, the damage was caused by an inherent defect or weakness of the building, and occurred over a period of at least 10 years. Accordingly, the Judge found that the exclusion applied.

2. Faulty design?

The Judge was satisfied that this exclusion also applied. He made reference to the lack of a suitable drainage system (or rather, the lack of one at all), and the fact that the risks were brought to the University’s attention at an early stage. It followed that the design was unfit for purpose, and the exclusion applied.

3. Contamination?

As above, the Judge found in favour of the insurers. The evidence made it clear that there were ‘probably’ old mineshafts underneath the site (albeit they were never found), which was agreed as being the most likely source of the contaminated water which was discovered in December 2011.

The ‘proviso’ clause

The final issue to be decided was whether the University’s claim was capable of being salvaged by the ‘proviso’ to the exclusion clause. This provided that the exclusion could not exclude subsequent damage from a cause not otherwise excluded.

The nub of the University’s argument was that, whilst the original damage was to the blockwork, the subsequent damage was the cracking and the other damage to the superstructure.

The Judge rejected this argument. The damage to the sub-structure and the visible damage to the superstructure above were all part of the same damage, the cause of which was excluded.

Comments

The judgment is a useful yardstick of how the Courts will resolve claims for property damage which was inevitable rather than fortuitous.

It also provides some helpful commentary as to how exclusion for wear and tear or gradual deterioration will be assessed – namely, by considering the interaction between the insured property and its environment.

Alexander Rosenfield is an associate at Fenchurch Law